This post asks what the blockbuster, selling out and dominating the displays of academic bookstores, by Thomas Piketty Capital in the Twenty-First Century, translated by Arthur Goldhammer (Belknap Press of Harvard University Press, 2014) can tell us about Africa’s economic history from the 18th century to the present or about Africa’s future in the world economy.
Piketty’s work, which Paul Krugman has praised, writing “this is a book that will change both the way we think about society and the way we do economics,” is at the moment embroiled in a debate sparked by Chris Giles of the Financial Times about the accuracy of his data analysis.
The central conclusion of Piketty’s book, summed up on page 571 of his 685 page magnum opus is as follows:
“The overall conclusion of this study is that a market economy based on private property, if left to itself, contains powerful forces of convergence, associated in particular with the diffusion of knowledge and skills; but it also contains powerful forces of divergence, which are potentially threatening to democratic societies and to the values of social justice on which they are based.
The principle destablizing force has to do with the fact that the private rate of return on capital, r, can be significantly higher for long periods of time than the rate of growth of income and output, g.” (Piketty, Capital, 571)
Significant attention and debate has recently been placed on Piketty’s conclusion that “that wealth inequality in the rich world is going back to levels last reached 100 years ago,” however much less attention has been paid to two other findings located within Piketty’s work. The first of these findings is that growth rates among the rich countries (defined by Piketty as the United States and Canada, the countries of Western Europe and Japan) have largely converged since the 1970s. The second conclusion is that government policy decisions have had very little impact on overall growth rates, especially for countries located at what Piketty calls the World Technological Frontier. In this post, I will mostly be interested in investigating the the implications of this convergence between the growth rates of different countries; rather than growing inequality within specific countries. In addition, although Piketty’s work is undoubtedly about the rich world, Africa, even more than the rich Gulf states, haunts the pages of this work, a shadowy alternative to the processes taking place in the stars of Piketty’s drama France, Britain, Germany and the United States, with supporting roles played by Sweden and Japan.
There is currently a renewed interest in African economic history, spearheaded both by young scholars such as Morten Jerven, author of Poor Numbers and recently Economic Growth and Measurement Reconsidered in Botswana, Kenya, Tanzania, and Zambia, 1965-1995. The need to rewrite the economic history of the independence period in Africa has also recently been highlighted by the historian Frederick Cooper in his recent work Africa in the World: Capitalism, Empire, Nation-State (2014).
The rest of this post will be devoted to attempting to uncovering exactly what Piketty is saying about Africa in particular and the emerging world in general. After reveiwing the the passages that dealt with Africa or the convergence between developing countries and rich countries, four broad conclusions can be reached by reading Piketty:
- The end of Europe’s political domination over Africa, Asia and Latin America in the mid-20th century led to a partial convergence between the economic fortunes of these three regions, particularly because unequal transfers of wealth have largely ended.
- The one exception to this general trend is the region of Sub-Saharan Africa, which continues to have a large share of its national income owned by foreigners, even as it owns relatively little of the rest of the world.
- There is significant divergence in the capabilities of states in the emerging economies. States such as China are able to capture around 30% of national income in taxes and government revenue, historically a number associated with the creation of the modern social state. On the other hand, India and many countries in Sub-Saharan Africa are only able to capture around 10-15% of national income in taxes, a number that historically means that the state can only perform the basic functions of national security and law and order, but that it is incapable of providing adequate education or healthcare.
- Finally, because the convergence in the income of poor and rich countries is based on knowledge transfer and implementation, we are likely to see a growing divergence within the emerging economies between those countries that adequately invest in health and education and those countries that cannot afford to invest at similar rates.